INEQUALITY CORRUPTS

Engin DALGIÇ (McGill University)

This paper aims to explain the empirically postive correlation between inequality and corruption. A simple political economy model is built for this purpose in which initial inequality between a power holding elite and the rest of the population is a determinant of the ensuing corruption level. The main mechanism to be highlighted is that the elite may have incentives to cultivate corruption because it decreases the demand for redistribution by other groups.

Possible relationships between corruption, inequality and growth in thi framework is also discussed in an extension. Finally some cross-country evidence pertaining to the implications of the model is presented.